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(3) determines the tax by (a) computing the tax under section 1
for all income that is not elected farm income plus (b) the
increase in the section 1 tax for each of the 3 prior years
caused by including one-third of the elected farm income in each
year.8
Respondent frames the first issue as "whether a taxpayer
electing farm income averaging can reap a double benefit by
carrying back net operating losses in base years, receiving a tax
benefit therefrom, and then utilize the same negative taxable
income in computing * * * tax liability under farm income
averaging" in subsequent years. Petitioners, while admitting
receiving income tax refunds attributable to the carryback of
NOLs from 2 of the base years in the section 1301 income-
averaging computation for the years at issue, contend that the
8 Sec. 1301 was enacted as part of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, Title 1X, sec. 933(a), 111 Stat.
881, adding sec. 1301. That act was effective for 3 years, 1998,
1999, and 2000. The Omnibus Consolidation and Emergency
Supplemental Appropriations Act of 1999, Pub. L. 103-277, sec.
2011, 112 Stat. 2681-902, made permanent the income-averaging
provisions of sec. 1301. Both statutes limit applicability to
any individual engaged in a farming business and apply only to
electible farm income for the election year and the averagible
farm income for 3 years. An earlier version of sec. 1301 was
repealed by the Tax Reform Act of 1986, Pub. L. 99-514, sec.
151(a), 100 Stat. 2121, for taxable years beginning after Dec.
31, 1986. The earlier version of sec. 1301 was not limited to
farm income and generally applied if the income of the current
year exceeded 140 percent of the taxpayer's average income for
the preceding 3 years by more than $3,000. These are the only
apparent differences between the current sec. 1301 and the
earlier repealed version.
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